Key opportunities and challenges facing the construction industry

What does Brexit have in store for the UK construction industry, particularly when it comes to the development of newbuilds? Asks Jerald Solis, business development and acquisitions director at Experience Invest

Of all the sectors underpinning the UK economy, one cannot overlook the importance of the construction sector. Contributing an impressive £113 billion to the economy in 2017, the sector is made up of 280,000 individual businesses and responsible for employing 10% of the UK workforce.

Given the significance of the construction sector on national productivity, it is vital to consider how Brexit – in whatever form it may take – will impact the industry’s long-term growth prospects.

Importantly, since the EU referendum in June 2016, the construction industry has not been deterred by the ambiguity surrounding Brexit. One only needs to look to the rising urban hubs in places like Liverpool, Cardiff and Luton to see that demand for infrastructure and newbuild housing has remained consistently strong.

Take major infrastructure projects like High Speed 2 (HS2) and Crossrail for instance – not only are they improving transport connections between major UK cities, they are also leading to an increase in demand for property in these regions. What’s more, output from the infrastructure sector, a primary driver of growth for construction, is forecast to hit a historic high of £23 billion by 2020.

Once the Brexit deadline passes on March 29, 2019, there will naturally be a period of readjustment as the new political and economic realities settle in. So, looking forward, what are the key opportunities and challenges facing the construction industry in the coming months and years?

Building for the UK’s future
A quick survey of the UK’s current construction projects shows that there’s indeed no shortage of urban developments. This is particularly true when it comes to newbuild housing. In a bid to address the current imbalance between supply and demand, the government is aiming to add 300,000 homes to the market each year by the mid-2020s. As a result, new housing developments are springing up in popular regional cities.

Liverpool, for example, has fast become an attractive destination for workers eager to take advantage of the city’s affordable living options and modern facilities. The injection of investment into the city as part of the Northern Powerhouse strategy has resulted in more prime businesses opening major offices in the north. Liverpool also accommodates the UK’s second fastest growing cluster of digital technology startups, encouraging entrepreneurs to make a move to the city.

In response to Liverpool’s thriving industries, there has been significant increase in residential and commercial property developments, boasting state-of-the-art designs and facilities.

The Liverpool City Council is also investing £250 million towards improving transport links and infrastructure, while a massive £14 billion worth of development works currently in the pipeline to provide new office spaces, student accommodation and apartment complexes.

Supporting the industry’s workforce
To keep up with the pace of the country’s infrastructure demands, it’s crucial that the construction industry has access to the workforce and skills needed. The availability of labour is already one of the biggest challenges facing the industry, and this could be exacerbated as a result of Brexit.

As it stands, an estimated 7% of workers in the construction industry are EU27 nationals, while in London, this number jumps to over a quarter (28%). Brexit uncertainty has cast a shadow over the status of these workers, and this has become more worrisome given there is still no consensus on how Brexit will be managed. The UK government must therefore ensure that there are comprehensive – and accessible – guidelines in place to clarify the future of worker’s rights and support them through any required residency permits.

At the same time, more resources must be diverted towards promoting specialised trades like carpentry and plumbing to ensure that these valuable skills are not lost. Offering training programmes to support high in-demand skills will cater to the long-term needs of the UK’s construction industry, while also attracting the next generation of prospective workers. One worthwhile approach that developers, for instance, might consider is collaborating with local councils to create apprenticeships for those seeking hands-on experience and training.

Access to materials
Sourcing materials might also present a challenge for construction companies post-Brexit. The reality is that more than £10 billion worth of construction products are imported from the EU each year. This represents around 15% of all products used in UK construction, according to Build UK.

Considering the gradual decline in the value of the Pound Sterling, the costs of these imports are likely to rise. What’s more, the prospect of losing tariff-free access to the single market and facing import duties and restrictions as a result, could increase operating and construction costs of developers.

However, if the UK successfully renegotiates trade deals to replicate arrangements currently in place, there is a good chance that the supply of materials will continue at similar costs.

Preparing for Brexit and beyond
Against a backdrop of uncertainty, it’s important to remember the importance of the UK’s construction industry as both a source of productivity and economic growth. Since the June 2016 vote, we have seen unprecedented levels of new construction projects taking place across the country, fuelled by high levels of investment from both the public and private sectors. With mounting demand for property, particularly in regional hotspots like Liverpool, the construction industry has an important role to play in addressing the needs of the UK. That’s why the industry needs to be supported during Brexit, ensuring that it is positioned to reach its full output potential.